My Energy Plan Is Better Than Yours

Charles Peña

In addition to dueling over Afghanistan (the
subject of my last column),
Senators McCain and Obama are trying to one-up each other when it comes to
energy. Most notably, the McCain campaign recently released an ad that essentially
blames
Obama for $4-a-gallon gasoline (although the price of gasoline has actually
gone
down since the ad was first aired).

According
to McCain, "the rising price of oil has brought hardship to our country,"
and this hardship is "because the price of oil is too high, the supply
of oil is too uncertain, and we depend on oil too much." McCain has previously
admitted to not
knowing a lot about economics, and his comments reflect that. While we
might not like paying more for gasoline at the pump, there is no such thing
as the price of oil being too high (or too low). Ultimately – all things being
equal – the price of oil is determined by supply and demand. If the latter
outpaces the former, then the price will go up. So why has the price come down
in recent weeks? Largely because we're driving less (Americans
drove nearly 10 billion fewer miles in May – when the price of gas broke
the $4-a-gallon barrier – compared to the previous year, and more than 40 billion
fewer miles during the first four months of the year), which means demand is
less. Less demand drives the
price down. It's amazing how that happens.

McCain's solution to the woes of paying too much for and being too dependent
on oil? Produce more oil – largely by lifting the self-imposed moratorium on
offshore drilling to increase supply (Obama
has indicated a shift in his previous opposition to offshore drilling "if
we can come up with a genuine, bipartisan compromise"). Not surprisingly,
President Bush echoed this sentiment in his weekly radio address: "To
reduce pressure on prices, we need to increase the supply of oil, especially
oil produced here at home." But if we want to become less dependent on
oil and use alternative fuels (something both McCain and Obama advocate), increasing
supply as a way to keep the price of gas low is exactly the wrong thing to
do. Trying to keep supply up and price down is a surefire prescription for
people to believe they can keep consuming oil as they have previously and that
doing so is affordable. The only way behavior patterns will change is if the
economics of oil dictate a change, which is exactly what is happening as we
speak. Any attempts by government to "fix" the current "problem"
will only derail the change that is currently happening.

Both McCain and Obama are chasing the chimera of energy independence. The
reality is that – at least with respect to oil – there is no such thing. According
to Massachusetts Institute of Technology economist Morris Adelman: "The
world oil market, like the world ocean, is one great pool. The price is the
same at every border. Who exports the oil Americans consume is irrelevant."
The practical proof of this is that in the late 1970s the United Kingdom was
essentially oil self-sufficient – virtually all of its oil consumption came
from the North Sea. Yet when the price of oil spiked in 1979, the UK was hit
just as hard as Japan, a country that was almost entirely dependent on imported
oil. Why? Because oil is a commodity traded on the worldwide market and both
its supply and price are indifferent as to where it comes from or where it's
going. So the notion that domestic oil would somehow assure supply or a low
price is false – unless you believe that domestic oil companies would forgo
profit in favor of patriotism to ensure that their oil stays on the U.S. market
at prices less than what the rest of the world is willing to pay. (The last
time I checked, Exxon Mobil wasn't too keen about reducing its profit to ease
the burden of higher gas prices for the American consumer).

And legislating fuel efficiency (something favored by Obama, but not McCain)
is not the answer either. The market is already pushing automobile companies
toward more fuel efficiency. Car dealers can't give away previously sought-after
SUVs and trucks. According
to the Wall Street Journal, "Auto makers are seeing a shift
that was further underscored in July: American consumers long enamored with
trucks and SUVs are now looking for fuel-efficient cars. Sales of Ford's SUVs
fell 54 percent, and its formerly top-selling F-series truck line dropped 20
percent." The
list of the most popular cars on Edmunds.com is filled with fuel-efficient
cars, including the Honda Civic, Toyota Prius hybrid, Saturn Aura and Vue hybrids,
Smart car, Chevy Cobalt, and Toyota Corolla (all in the top 10). And we're
seeing more car manufacturers introducing hybrid technology. So the market,
fueled (no pun intended) by consumer demand, is moving in the "right"
direction.

As an aside, I've not yet heard either candidate propose increased telecommuting
as a way to reduce oil consumption. Imagine how much less oil we would use
(and how much we would reduce automobile-related carbon emissions) if more
people worked from home (although working from home would still entail using
other sources of energy for heating/air conditioning and electricity for computers
and other electronic equipment). It seems like a no-brainer and one that comes
pretty close to being "no cost." Moreover, it would probably be a
pretty popular idea.

Of course, oil isn't the only energy issue, but it's the predominant one.
Since the vast majority of Americans drive cars, the price of gasoline has
an immediate effect on their pocketbooks and their psyches. Unfortunately,
both candidates seem to want to fix a problem they really can't fix. Because
energy is what fuels (again, no pun intended) our economy, trying to fix the
so-called energy crisis amounts to believing the government can somehow control
the economy. Yet the lesson of the demise of the former Soviet Union is that
government can't. And we would be better off if it didn't try.

SIDEBAR

To be fair to both candidates, there's nothing
wrong with pursuing alternative forms of energy. But a fundamental aspect of
alternative energy is that it must be economically viable. That is, as long
as there are other sources of energy that are cheaper, there is no incentive
for consumers to spend more for energy. Moreover, paying more for energy –
even if that energy is cleaner and greener – is hardly a prescription for revitalizing
the economy. And the current reality is that alternative energy is more expensive.
For example, I have a friend who is a small business owner. He chooses to buy
wind power for his electrical energy needs, not because it's cheaper (it's
not) but because he's
committed to operating a green business. I applaud his efforts. Even though
it means increased costs (which he has to pass on to his customers, of which
I count myself as one of the most loyal – I'm at Java
Shack almost every morning), his
business is thriving. My friend is fortunate, but in this economic climate
not all business owners can afford to take such principled stands.

Both McCain and Obama want to bring clean coal technology on line by having
the government invest more in research and development, since clean coal is
not currently commercially viable. McCain is proposing investing $2 billion
annually, and Obama includes clean coal as part of spending $150 billion over
the next 10 years. But how is government, i.e., taxpayer, investment going
to bring clean coal on line any faster and make it commercially viable? The
example often thrown out for getting the government to take responsibility
for finding a breakthrough in alternative energy such as clean coal is the
Apollo space program – after all, it took the government to be able to put
a man on the moon. Fair enough. But having put a man on the moon has not made
space travel a viable commercial endeavor. Again, the realities of economics
actually matter.

His articles
have been published by Reason; The American Conservative;
The National Interest; Mediterranean Quarterly;
Notre Dame Journal of Law, Ethics, & Public Policy; Journal
of Law & Social Change (University of San Francisco); Nexus
(Chapman University); and Issues in Science & Technology
(National Academy of Sciences).

His exclusive
column appears every other Wednesday on Antiwar.com.

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